18 May 2007

Rising inequality (part 2)

Further to preceding post.

Thanks to Tim Worstall for referring me to a recent prominent study on inequality in the US, Piketty and Saez (Quarterly Journal of Economics 2003). I am still following this up, but a couple of things strike me as immediately apparent, when looking at articles and comments about the issue on the blogs of academics such as Mark Thoma.

1) Most people purporting to be interested in the issue are not particularly concerned with the underlying dynamics of what is going on (e.g. some subgroups rising, some falling) but appear entirely focused on the headline figure. I.e. the only thing which matters to them is whether society in the aggregate is becoming more or less 'equal' by crude monetary measures, and not whether the statistics conceal the fact that some social groups have seen a dramatic drop in relative economic position.

2) It appears to be the done thing among academic types to rely on a common presumption that less inequality is good and more is bad. So the only thing to argue about is whether (say) inequality has been declining under Bush junior, or at least not rising as much as before — and whether any study which suggests it might have been (such as Piketty and Saez) is likely to be flawed because it is to be presumed implausible that this could have happened under a Republican President.

I suppose this is the sort of thing meant by the phoney phrase "the debate has moved on". I.e. it is no longer necessary, even as an academic, to produce arguments in favour of the proposition "less inequality is better than more". We can simply take this as read, and confine ourselves to quarrelling about whether in fact it has been increasing, and by how much.

I think what has also become, among a large number of academics, a tenet that can be treated as if it were true — to some extent independently of data, and certainly of anecdotal evidence to the contrary — is the belief that inequality "undoubtedly" has been rising. This has more or less taken on the status of dogma*, with anyone questioning it being considered automatically dodgy, and as probably having a right wing bias. (Remember: left wing bias = to be tolerated, right wing bias = v v bad.)

Incidentally, my reference to "upper middle class families with inherited capital" in the preceding post wasn't intended to confuse the income-capital distinction. My point was to contrast two different social classes, the old wealthy and the new wealthy. I would say there is, and has always been, a correlation between the wealthiest in terms of capital and in terms of income. One change may be that less of the capital of the new wealthy is inherited, compared to that of the old wealthy. Many (including some advocates of markets) would no doubt argue that this is bound to be a good thing. Not me though, for reasons I'll try to explain in the next instalment.

It may also be the case that the correlation between income and capital has been declining, as the group with the highest incomes has shifted away from being owners of capital such as the Duke of Westminster, and towards highly paid wage slaves such as City traders and chief executives. Again, pointers to other people's data or discussions would be appreciated.

* The statement "inequality has been rising" could almost be taken as a paradigm case of dogma: a belief, unsupported by clear-cut data, scepticism about which is rejected as "extreme" or "ideological", while the belief itself can be held without risk of having one's objectivity questioned by the consensus.

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